The Federal Reserve Board has backed the National Credit Union Administration's two-year effort to restrict Western Corporate Federal Credit Union's relationship with a California state employee retirement program.

The Fed last month said the San Dimas-based institution's acceptance of deposits from the California Savings Plus retirement program is inconsistent with its role as a bankers' bank.

In its decision, the Fed ruled that the program constituted a customer relationship with the general public, which is barred for bankers' banks.

As a result, Wescorp must post reserves with the Fed on the roughly $1 billion it receives from the program. However, Randy Moore, an attorney who represents Wescorp, said Fed rules allow Wescorp to offset those reserves with deposits it holds with U.S. Central. Wescorp has $3.9 billion in deposits at the industry's liquidity center.

"It's just one more piece of paper we have to sign," Mr. Moore said.

He noted that regular credit unions will be able to solicit retirement program funds, which in turn could be invested with Wescorp.

Wescorp got involved with the retirement program in 1993. Though no regulation banned such arrangements, the NCUA was immediately hostile to the deal.

Sources said the NCUA believed the alliance was inconsistent with Wescorp's mission as a liquidity and investment center for credit unions. The agency then told Wescorp it believed the relationship was inconsistent with its role as a bankers' bank. The agency told the corporate to request an opinion from the Fed on the arrangement, which the corporate did last September.

The NCUA has proposed a regulation to overhaul corporate investment regulations that would ban such relationships.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.